TAX POLICY

New FATCA Law — Aimed at Curbing Tax Evasion — Could Drive Foreign Investors Out of U.S. Real Estate Market, Roundtable Warns

The Roundtable last week wrote to the Internal Revenue Service (IRS) urging careful implementation of the Foreign Account Tax Compliance Act (FATCA), a 2010 law that seeks to curb tax evasion by U.S. citizens by requiring foreign financial institutions to report all of their U.S. account holders to the IRS by 2013. The law, which was tucked into the so-called “HIRE Act,” would add “substantial and unnecessary complexity and cost to foreign investment in U.S. real estate, severely discouraging the inflow of foreign capital that is critical to the U.S. real estate market and the overall economy (particularly in the current economic climate),” Roundtable President and CEO Jeff DeBoer stated in his Nov. 30 letter to the IRS.

DeBoer said it is not necessary to burden investments in U.S. real estate with FATCA requirements, since “various special rules for real estate investments already discourage investment by U.S. persons in U.S. real estate through foreign entities.” These include the Foreign Investment in Real Property Tax Act (FIRPTA), the branch profits tax and “Chapter 3” withholding rules. “….because of these rules, U.S. persons typically invest ‘directly’ into U.S. real estate (rather than indirectly through foreign entities); as such, their investment income already is reported to the IRS by U.S. real estate investment entities via the Schedule K-1 or Form 1099 mechanisms,” DeBoer explained.

Furthermore, he said, “applying the FATCA rules in the real estate context will do little in the way of identifying non-compliant U.S. taxpayers or encouraging compliance.”

The Roundtable is concerned that foreign investors could decide to forego investing in U.S. real estate — rather than be subjected to the cumbersome requirements, higher costs, and lower returns associated with the FATCA regime. Given the U.S. real estate sector’s heavy reliance on foreign investors, such an outcome would have dire consequences for the U.S. real estate market and would be counter to sound economic policy.

“While we fully support the goals underlying the FATCA regime, we respectfully contend that imposing the costs and burdens of the FATCA regime on foreign investments in U.S. real estate, without providing appropriate exceptions, would not serve any significant policy objective, but could have a detrimental impact upon the U.S. real estate market, inhibiting much needed foreign capital. Such a move could create a broader economic detriment that would touch the livelihoods of all Americans,” DeBoer concluded.

LABOR POLICY

NLRB on a Fast-Track to Finalize Key Parts of “Quickie Election” Rule — Before Losing 1 of 2 Democratic Appointees; House Votes to Block NLRB Action

With the National Labor Relations Board (NLRB) soon to lose one of its two Democratic board members (thus depriving it of a quorum), the agency is moving swiftly to finalize a controversial proposal that would substantially shorten the time between the filing of a petition for a union election and the election date, and limit opportunity for a full hearing of issues that may arise during the course of union election proceedings (Politico, Nov. 30).

TheNLRB is attempting to finalize a controversial proposal that would substantially shorten the time between the filing of a petition for a union election and the election date.

Last week, the NLRB voted 2-1 to proceed with new rules proposed in June (Roundtable Weekly, June 23), which would among other things, eliminate pre-election appeals to the NLRB and eliminate the right to seek review of any rulings pertaining to the appropriate bargaining unit and related items until after elections have taken place and ballots are counted (Fisher & Phillips LLP “Legal Alert,” Dec. 6).

Although certain controversial provisions from the original proposal have now been dropped (e.g., providing employee email addresses and phone numbers in the voter list and facilitating online petition-filing), the NLRB resolution would still expedite the election process substantially (from a median of 38 days to 19-23 days). Business groups and GOP lawmakers say the NLRB proposal could compress the lead time to as little as 10 days.

The lone Republican on the agency board, Brian Hayes, said the current version is “as unacceptable now as it was in June” (Fisher & Phillips LLP “Legal Alert,” Dec. 6).

The resolution approved Nov. 30 is still subject to a final vote, but with the appointment of Democratic board member Craig Becker set to expire when the U.S. Senate adjourns for the year, the NLRB is reportedly wasting no time in getting final approval for its rule.

As described in a Nov. 28 Wall Street Journal editorial, the “Becker-Pearce putsch [Mark Gaston Pearce is the Democrat chairing the NLRB] would give labor organizers months to quietly pitch workers, then give targeted companies less than two weeks to react and make their own case before a quickie election.”

The Roundtable and its partners in the roughly 600-member Coalition for a Democratic Workplace strongly oppose the NLRB’s proposed changes, which would speed up union votes so that voters have less time to learn about the consequences of unionization.

As the Fisher & Phillips Legal Alert concluded, “Taken together, these changes represent the most sweeping reforms to representation election procedures since the inception of the National Labor Relations Act. Indeed, it would appear that organized labor has finally secured its ‘Plan B’ to the Employee Free Choice Act, in the form of new ‘quickie election’ rules.”

A day after the NLRB vote, the U.S. House (on Dec. 1) voted 235-188 in favor of legislation to block the NLRB rule. The measure was sponsored by House Education and Workforce Committee Chairman John Kline (R-MN), who held a hearing on the so-called “ambush rule” in July (Roundtable Weekly, July 8).

In conjunction with the hearing, the committee said the NLRB’s proposed changes “will restrict an employer’s ability to communicate with his or her employees and hinder a worker’s right to make a fully informed decision in a union election.” The Kline bill is expected to die in the Senate.

In a letter to the chairman and top Republican on the Senate Judiciary Committee on Monday, Real Estate Roundtable President and CEO Jeffrey DeBoer expressed support for legislation (S. 642) to permanently reauthorize the EB-5 “immigrant investor” program, which he characterized as “an innovative economic development vehicle” and “important funding source for vital real estate development projects that create well paying American jobs.” Funding for the program, which is administered by the U.S. Citizenship and Immigration Services (USCIS), is set to expire at the end of September 2012.

“Congress must show potential investors from around the world that America welcomes immigrant investors and values their contributions. If we do not, potential investors will be lost to Canada, the United Kingdom, Australia, and other nations that recognize immigration through investment,” Leahy stated. “We are already hearing that the uncertainty about the program’s future is a drag on investments and on our economic recovery.”

Permanent reauthorization would “provide investors with the certainty and predictability they need to invest and conduct business with confidence,” he added. In 2011 alone, the EB-5 Regional Center Program will create and/or save an estimated 25,000 jobs, and generate direct investment in American communities of over $1.25 billion.

Because the program is revenue-neutral and has no taxpayer impact, it has been extended with bipartisan support since its inception, DeBoer said in his Dec. 5 letter to Leahy and Judiciary Committee ranking Republican Charles Grassley (R-IA). He also highlighted the program’s potential to help finance energy efficiency retrofit projects in commercial buildings.

“Our members are at the vanguard of innovation in efficiency retrofits projects, but to make deeper and more significant energy reductions in buildings, we must encourage programs that assist with the upfront capital expenses associated with expensive renovations,” he explained.

“To the extent that EB-5 funds can be used to help underwrite retrofit costs, we can re-employ construction workers, lower energy costs, modernize our building infrastructure to stay competitive in the global marketplace, and help secure our nation’s energy future.”

In an interview on CNBC’s “Squawk Box” this week, Roundtable Chairman-Elect Robert S. Taubman (Taubman Centers, Inc.) joined Roundtable board member William C. Rudin (Rudin Management Inc.) in discussing the job-creating potential of energy retrofits in commercial buildings. In particular, they discussed last week’s announcement by the White House that 60 private-sector leaders — including members of The Roundtable — have pledged nearly $2 billion for energy retrofits over next two years under the President’s Better Buildings Challenge (CNBC Squawk Box, Dec. 6).

“We think it’s good for the environment, but it can also be very good for business because [it reduces] costs,” Taubman said of the energy commitments made under the Obama Administration’s voluntary Better Buildings Challenge. Citing an analysis commissioned by The Roundtable, U.S. Green Building Council and Natural Resources Defense Council, Taubman further remarked that federal programs to incentivize building retrofits “could literally put over 100,000 people to work almost instantly.”